CIA.Disclosure

This paper discusses the enhanced financial statement disclosure requirements of IFRS 4 (International Financial Reporting Standards).   Forum

Pop Quiz

What is the difference between the accounting standards SAP and GAAP with respect to objectives? (See Odo.FinReg)

BattlePlan

Based on past exams, the main things you need to know (in rough order of importance) are:

• concentration risk: considerations, data, disclosures

The questions on concentration are actually pretty easy. Even if you hadn't study the paper, you could take a pretty good guess based on general knowledge.

Top Questions ← Questions you absolutely need to know!

reference	part (a)	part (b)	part (c)	part (d)
E (2016.Fall #26)	see CIA.CSOP	see CIA.CSOP	see CIA.Discnt	concentration risk: - considerations
E (2014.Spring #32)	concentration risk: - considerations	concentration risk: - disclosures
E (2012.Fall #35)	concentration risk: - disclosures	concentration risk: - data	concentration risk: - considerations

In Plain English!

As I mentioned in the short summary at the top of the page, the paper discusses the enhanced financial reporting requirements of IFRS 4. Note that IFRS 4 is being phased out and will be replaced with IFRS 17. This is discussed in the source reading for CIA.Valn.

Question: what the heck is IFRS 4?

• Well, IFRS stands for International Financial Reporting Standards, and there have been different versions. The specific subject of IFRS 4 is classification of insurance contracts, and disclosures that should be provided in insurance contracts. In general, IFRS refers to a set of accounting standards developed by the International Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial statements. Recall the discussion of SAP and GAAP accounting standards from Odo.FinReg. You should be aware that IFRS differs from these in important ways, but that's beyond the scope of the syllabus. This paper has a very easy overall concept:

Anything that has a material effect on the F/S must be disclosed.

The 24 pages of text is just an EXTREMELY detailed breakdown of the areas of disclosure organized into 4 broad categories: [Hint: PERL]

Principles: significant accounting principles (Ex: treatment of capital expenses)

Estimates: critical accounting estimates & judgments (Ex: actuary's estimate of trends)

Risk: management of insurance & financial risk (Ex: concentration risk)

Liabilities: insurance liabilities & reinsurance assets (Ex: actuary's valuation methods)

Now, I don't think you'd be asked to reproduce the above list, especially since this is a low-ranked paper. A better exam question might be if you're given a specific scenario within and insurance company and then asked what the actuary should disclose. But even that seems unlikely.

My best guess is that they would ask something very similar to a past question, so if you take just a few minutes to go over those, you should be good to go. The example of concentration risk under the "Risk" category is highlighted because every old exam problem from this reading was about concentration risk! (It has been asked in 2012, 2014, 2016, so following the pattern, will it be asked again in 2018?)

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BattleCodes

Memorize:

• 4 considerations in determining concentration risk
• (I don't think you need to memorize the 4 broad areas of disclosure - that was just for context.)

Conceptual:

• According to IFRS 4, anything that has a material effect on the financial statement needs to be disclosed.

Calculational:

• You should be able to interpret a table to determine if there are concentrations of risk.

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POP QUIZ ANSWERS

With respect to objectives, the difference between the accounting standards SAP and GAAP are:

SAP: measures ability of an insurer to pay claims

GAAP: measures earnings

So, the intended user for of statements prepared under SAP would be regulators concerned with solvency, whereas the intended users of GAAP statements would likely be investors.